Japanese stocks rose for a sixth day Friday with the Topix jumping to market capitalization record. Stocks in the world’s third-largest economy rest near 15-year highs, buoyed by solid first-quarter GDP report released earlier this week.
U.S. exchange traded fund investors are taking note. To this point in Friday’s session, 28 ETFs have hit 52-week highs with five of those funds being Japan ETFs. The slumping yen is aiding the ascent of Japanese equities and the corresponding ETFs.
Over the past month the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) is lower by 1.7%, indicating that investors have mistakenly pulled $13.3 million from the ProShares UltraShort Yen (NYSEArca: YCS), which tries to reflect the daily -2x or -200% daily return of the USD/JPY currency pair, this month. YCS has done a nearly perfect job of delivering double the inverse returns of FXY over the past 30 days, rising 3.36% as FXY has dropped 1.72%. [Dollar Winning Currency War]
Dollar/yen charts indicate more downside could be on the way for the Japanese currency.
“We are working on the assumption that the Bank of Japan (BoJ) will continue to test the supply/demand limits (i.e. already buying just about all of the JGB’s being issued every month), and will incrementally increase QQE and that in turn will lead to a move in the Dollar-Yen (USD/JPY) to 128-130,” said Rareview Macro founder Neil Azous in a note out this week.
Azous adds: “We derive this Yen range from simply taking the high-low of the 6 -month rectangle going back to December 2014 of 6.2 big figures and adding it the high of 122.03 back on March 10, 2015. USD/JPY is coiling and the release, and if it is to the upside, it will be greater than the range technically.”
Chart Courtesy: Rareview Macro. Chart dated May 21, 2015
The expectation of further yean weakness is prompting investors to allocate new capital to yen hedged ETFs, which are already among this year’s top asset-gathering ETFs. Since the start of this month, the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) has added over $195 million in new assets, up from $68.3 million as of May 18. [Investors Still Like Japan ETFs]
DXJ has added $3.5 billion in new assets this year, a total surpassed by just four other ETFs. The Bank of Japan’s loose monetary policy is performing as intended, with governor Haruhiko Kuroda stating that the economy is growing and inflation is inching higher. Consequently, the BOJ may hold off on further monetary easing. [Aggressive Easing Sustains Japan ETFs]
The Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) has impressed as well. As of May 18, DBJP’s May inflows were just over $93 million, but that number has since climbed to $117.4 million.
Investors preference for Japan ETFs is not limited to large-cap far, such as DBJP and DXJ. The WisdomTree Japan Hedged Small Cap Fund (NasdaqGM: DXJS) has added $14 million this month, up almost 40% since May 18.
DXJS’ $14 million in May inflows represent nearly 8% of the ETF’s $178.5 million in assets under management. FXY’s modest 1.6% year-to-date dip has helped propel DXJS higher by nearly 19%.